This past week the discussion was on turkey and the start of the Holiday shopping season. Over the next couple of weeks we will see if consumer spending is as buoyant as the stock market. The early indications from Black Friday and the first shopping weekend is that consumers are out in force, but are not spending that much. According to data from the National Retail Federation Weekend Survey:

"...195 million shoppers visited stores and websites over Black Friday weekend, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending reached an estimated $41.2 billion.

“Shoppers proved this weekend that they were willing to open their wallets for a bargain, heading out to take advantage of great deals on less expensive items like toys, small appliances and winter clothes,” said Tracy Mullin, NRF President and CEO. “While retailers are encouraged by the number of Americans who shopped over Black Friday weekend, they know they have their work cut out for them to keep people coming back through Christmas. Shoppers can continue to expect retailers to focus on low prices and bargains through the end of December.”

Of course, comparing sales to last year is like comparing an ocean liner's maiden voyage to that of the Titanic. Everything is going to look better in comparison. I was out today at Best Buy and the store was busy, but not frenzied. The women at the cash register told me that there had been a steady stream of customers all day. We'll see if consumers are as ebbuliant as the markets and the Wall Streeters who are getting record bonuses this year.

The other big news for the week was the potential default of the Dubai World Fund on its $59 billion in debt. Now, let's put that into perspective. $59 billion is not that much money on a global basis and it will certainly be backed up by the United Arab Emirates. But it shows the fragility of the once high-flying emerging markets. If Dubai can get into trouble, it raises questions about other Gulf countries and other regions of the world with high debt ratios - what region besides Asia doesn't have high debt ratios? As revenue and collateral values plummet anyone can be exposed. The tied has gone out and now we're seeing who's left stranded on the beach.

Against this backdrop we did see some good news on the real esate front - I think. Home prices showed sustained improvement in the third quarter. That marks three straight quarters in which prices didn't fall as fast as they did in the past. Or in real esate parlance: The annual rate of return has improved from a -14.7% decline in the second quarter to a -8.9% decline in the third quarter." You can read the whole article here.

Existing homeprices also rose 10% in October according to the National Association of Realtors. But as Sam Cass notes in his article Existing Home Sales Rise 10% in October - Break out the Bubbly, be very suspicious of that number. Government steroids may be responsible for much of that gain.

It is against that backdrop that we dive into a review of Savings, CD, and Mortgage Rates:

CD and Savings Rates

Savings rates hit a new 52-week low last week, falling by 1 basis point from 1.62% APY to 1.61% APY. One year CD rates took the steepest drop, falling by 7 basis points to 2.01% APY. Both three year and five year CD rates fell slighly, by 3 and 2 basis points respectively. The slow, painful downward trend continues.

Looking at the yield ratio we have developed for deposit accounts , we see that the spread between savings rates and 36-month CDs remains close to its 12 month high. While it has come slightly in the last few weeks, the ratio is still elevated relative to earlier in the year. This reflects the rate stability in longer term CD rates even as savings rates continue their glacial descent. The story is really the weakness in savings rates and the continued 0% Fed rate policy. That's driving the ratio. Banks are still awash in cash and cheap money from the Fed and the Fed's policy of keeping rates low for an extended period of time is going to drive this ratio higher.

It's still hard to recommend putting money into anything longer-term than a 12-month CD, especially with soaring equity markets and signs that the economy may be coming back to life. For those worried about interest rate risk, cd laddering may be a good way to smooth out the return you receive from your CD portfolio.

Mortgage Rates

Savers' pain is a borrower's gain. Mortgage rates again hit record lows over the past week. According to the BestCashCow rate tables, the average 30-year fixed rate mortgage is now below 5% at 4.893%. The fifteen-year fixed rate mortgage average is 4.362%, at an all-time low.

You can compare the best mortgage rates in our new Mortgage section.

The FDIC released numbers for the third quarter of 2009 and they weren't pretty. While banks earned a bit more money, losses continued, more banks were added to the problem list, total loans declined, and the FDIC needed to tap an emergency assessment to keep from running out of cash.

Key highlights of the press release include:

• Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $2.8 billion in the third quarter of 2009, more than three times the $879 million the industry earned a year earlier.
• More than 26 percent of all insured institutions reported a net loss in the latest quarter, up slightly from nearly 25 percent a year earlier.
• Loan balances declined by the largest percentage since quarterly reporting began in 1984.
• Insured institutions charged off $50.8 billion in uncollectible loans during the quarter, up from $28.1 billion a year earlier, and noncurrent loans and leases increased by $34.7 billion during the third quarter.
• Net interest margins improved to a four-year high. This is what contributed to bank profits. Banks are able to borrow money at 0% from the Fed or 1% from depositors and loan it out for 5%. It's impossible not to make money in the environment engineered by the Fed to saved the banks.
• At the end of September, there were 552 insured institutions on the "Problem List," up from 416 on June 30. This is the largest number of "problem" institutions since December 31, 1993, when there were 575 institutions on the list. Total assets on the problem list increased to $345 billion. If we assume that in a worse case scenario all of these banks fail, and the FDIC is on the hook for 10% of the problem assets, that's an extra $35 billion the FDIC must pay out. Which brings us to the next point...
• As projected in September, the FDIC's Deposit Insurance Fund (DIF) balance – or the net worth of the fund – fell below zero for the first time since the third quarter of 1992. The fund balance of negative $8.2 billion as of September already reflects a $38.9 billion contingent loss reserve that has been set aside to cover estimated losses over the next year. Just as banks reserve for loan losses, the FDIC has to set aside reserves for anticipated closings over the next year. Combining the fund balance with this contingent loss reserve shows total DIF reserves with a positive balance of $30.7 billion.

So, there you have it. Banks are still struggling, the FDIC is fighting hard to keep up, and more bank closings are coming.

This week the discussion continued about whether the Fed's 0% rate policy is leading to the creation of asset bubbles. Chinese and Japense central bankers went on record as stating that the Fed's policy has already led to asset bubbles in Asia that could create global imbalances. In particular, they were referring to the carry trade, in which investors borrow money in a country with low interest rates and invest it in a country with strong asset price growth or higher rates of return. "Liu Mingkang, China’s chief banking regulator, said that the combination of a weak dollar and low interest rates had encouraged a “huge carry trade” that was having a “massive impact on global asset prices”….

Bill Gross from Pimco probably got it right when he said:

"The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks . Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until. To date that transition is incomplete, mainly because mortgage refinancing and the purchase of new homes is being thwarted by significant changes in down payment requirements. The Treasury as well, has a significant average life extension of its own debt to foist on investors before the Fed can raise short-term Fed Funds."

The only good news for savers is that inflation for goods and services remains relatively subdued. The CPI rose by .3% in October. The index has decreased by .2% over the past 12 months. Leading the increase in October was energy and automobiles. While energy prices will probably continue to rise, look for auto prices to fall back now that cash-for-clunkers is over and the government is no longer subsidizing car purchases. Overall though, there is nothing on the goods and services inflation front that would push the Fed to raise rates.

The only inflation seems to be in assets and Bernanke doesn't believe this presents a problem at the moment.

CD and Savings Rates

CD and savings rates showed virtually no movement over the past week. The average savings rate according to the BestCashCow rate tables dropped one basis point to a new low of 1.62% APY. That's down from 1.70% APY a month ago. CD rates have mostly stabilized. The average one year CD rate is now 2.08% APY. That's up slightly from the last week and virtually the same average rate that we saw in October. For the fourth week-in-a-row 5 year CD rates held at 3.35% APY.

Looking at the yield ratio we have developed for deposit accounts, we see that the spread between savings rates and 36-month CDs is still close to its 12 month high. While it came down slightly, the trend is still up. This reflects the rate stability in longer term CD rates even as savings rates continue their glacial descent. The story is really the weakness in savings rates and the continued 0% Fed rate policy. That's driving the ratio. Banks are still awash in cash and cheap money from the Fed and the Fed's policy of keeping rates low for an extended period of time is going to drive this ratio higher.

It's still hard to recommend putting money into anything longer-term than a 12-month CD, especially with soaring equity markets and signs that the economy may be coming back to life. For those worried about interest rate risk, cd laddering may be a good way to smooth out the return you receive from your CD portfolio.

Mortgage Rates

Mortgage rates have declined over the past three weeks, touching lows not seen since last April when the Fed began buying up mortgage backed debt. According to the BestCashCow rate tables, the average 30-year fixed rate mortgage is now below 5% at 4.901%. The fifteen-year fixed rate mortgage average is 4.373%, close to the all-time low.

What one hand giveth, the other taketh. And so it is that savers are subsidizing borrowers. I could provide a scathing commentary on this but will simply say that if you can't beat them, join them. If you are looking to buy or refinance, now is another great opportunity to do so. You can compare the best mortgage rates in our new Mortgage section.